We all know that life insurance is important. If you have financial obligations that could become a problem when you die, you should be covered. But sometimes that’s easier said than done. For seniors, final expense life insurance or guaranteed issue life insurance are ways to get a relatively cheap whole life insurance policy to cover basic obligations.
Final expense life insurance and guaranteed issue whole life insurance serve a similar purpose, but there are distinctions that anyone considering applying for them should be aware of.
Final expense life insurance vs guaranteed issue life insurance
Final expense life insurance and guaranteed issue life insurance are similar in a lot of ways, and may be used interchangeably, but there are a few key differences that you should know.
Both final expense life insurance and guaranteed issue life insurance are more lenient than other types of life insurance as far as who qualifies for them. When it comes to term life insurance – which lasts a limited length of time – your health and age greatly affect your insurance rates, and you may even get outright declined (although it’s rare). Neither final expense or guaranteed issue life insurance are that strict about your health ratings.
Final expense life insurance requires you to answer a few questions about your health, but that’s about it. There isn’t the same sort of in-depth research that comes with a term life insurance policy; that makes it a type of simplified issue life insurance. Guaranteed issue life insurance takes it a step further; with the exception of a few "knockout" conditions (like if you already have a terminal illness), if you pay your premiums, you’re covered.
Because you’re not getting tailored rates based on your specific health status, both final expense insurance and guaranteed issue life insurance are much more expensive than term life insurance, and provide less coverage. Essentially, they are end-of-life policies primarily catering to seniors and less-healthy applicants. They’re both useful as burial insurance – providing enough coverage to handle funeral costs, but not much else.
If you have health issues that prevent you from getting competitive rates with term life insurance, you might opt for one of these insurance types that don’t scrutinize your health quite as closely, but you’ll (literally) pay the price for that privilege. Still, some insurance coverage may be better than none.
The differences between final expense life insurance and guaranteed issue life insurance are in the details.
The first is what we outlined above: Final expense insurance does take your health into account somewhat, while guaranteed issue insurance doesn’t. The coverage amount you get with guaranteed issue insurance depends on your age, sex, and where you live.
That brings us to another difference that we discussed in a previous article. Guaranteed issue life insurance is unique in that the premium rate stays the same at a fixed "unit price," but the coverage amount differs:
When we ran quotes at Colonial Penn, we found that a 60-year-old male from California could get a death benefit of $1,214 for $9.95 per month. A 75-year-old male, on the other hand, could only get a death benefit of $560. You can buy multiple units of coverage in order to get a larger death benefit.
Final expense life insurance provides more coverage than guaranteed issue; while guaranteed issue usually caps out at around a $10,000 death benefit, you can typically get up to $25,000 with final expense insurance. Relative to term life insurance you’ll still be paying a lot for that $25,000, but depending on what you need it for (ie, how much you want to cover in terms of funeral costs) final expense life insurance may be the better fit than guaranteed issue.
Finally, final expense insurance usually has more guidelines around who qualifies. It’s intended for end-of-life expense coverage, so it’s limited as to how old you must be to apply, and when it expires. State Farm’s final expense life insurance policy is only available for applicants aged 50-80, and it always expires when the policyholder turns 100. Guaranteed issue insurance doesn't have these limitations.
Consider term life insurance
If you can get term life insurance, it’s almost always your best bet. It’s intended to expire after a certain time period, so if you can clear up any debts that may pass to loved ones by the time you’re a senior it’s the most affordable way to get the most life insurance coverage compared to other options.
When you apply for term life insurance, there’s a premium (that’s an insurance pun) placed on your health. You’ll answer a few simple questions about your health when you apply, have a phone interview to discuss your health, and go through a paramedical exam so the insurer can get a better insight into your current health and potential future health issues.
You might also apply for a type of term life insurance policy with accelerated underwriting, where you’ll skip some of the above steps, but the insurer will use third-party sources to build a health profile of you. They’re getting the same information in a different way.
This all happens during the underwriting process. The insurer will use all of this information to assign you a rating, or classification, ranging from Preferred Plus to Substandard. This is basically a measurement of how risky you are to insure. The higher your rating – the better health you’re in – the lower your premiums, and vice versa.
That’s a quick primer, but it’s important to understand that the product and the vetting process make it much cheaper than final expense of guaranteed issue whole life insurance.
Final expense life insurance and guaranteed issue life insurance are a last resort
The key takeaway in all of this is that both final expense and guaranteed issue life insurance are last resort options.
Even if you’re a senior or have health issues that you think may disqualify you for a term life insurance policy, it should still be the first step in your research. You’d be surprised at how accommodating insurers can be; health conditions like diabetes and cancer, which were major roadblocks a few years ago, can still get competitive ratings. And considering the cost of final expense and guaranteed issue life insurance, older applicants may still find it more cost-effective to buy a term policy. You’re likely to get higher death benefit options or lower premiums, or both.
Don’t rush into an option that might be the wrong financial choice. Get a free term life insurance quote and talk to a licensed expert about your coverage options so you make the right decision in protecting your loved ones.